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Boeing Sells 28 Planes to Saudi Arabian Airlines for $8B

World’s leading commercial aircraft maker The Boeing Co. (BA - Free Report) has sold 28 wide-body jets to Saudi Arabian Airlines, as per media sources. The deal has been valued at $8.0 billion at current list prices.

Details of the Deal

The deal covers the purchase of 15 777-300ER (Extended Range) jets and 13 787 Dreamliners by the national airline of the Saudi government as part of an extensive fleet modernization and expansion of services initiative by the Transportation Ministry of the country.

With this order, global wide-body jet sales in 2016 will surely see an uptrend, in turn reversing the weak market scenario.

Reason Behind the Purchase

According to Sulaiman Alhamdan, Saudi Arabia's transportation minister and the airline's chairman, the purchase has been aimed at improving the airline's operational efficiency and enhancing its quality of services to boost customer experience.

The airline mentioned that it has discarded four Boeing 747-400 jets from service this year and plans to remove 23 777-200s in 2016 and 2017. The move thus calls for the replacement of these planes with new ones.

The airline plans to use a few of the purchased jets to train and prepare Saudi workers to operate and maintain the new aircraft.

The new airplane will be used for passenger transport on national and international routes. This will help the airline grow its fleet to 200 from 119 by 2020 and introduce new international and domestic routes, allowing it to meet the targets announced in 2015.

Earlier, in 2012, the Saudi Arabian government had announced that it would liberalize the domestic aviation market, helping the nation’s air travel industry to gain from robust population growth and rising incomes.

Apart from buying jets from Boeing, Saudi Arabian Airlines has also purchased 35 New Generation A320/A321-neo planes from Airbus Group SE . The deal is part of the airline’s efforts on expanding its fleet.

The Boeing-Saudi Arabian Airlines Alliance

Saudi Arabian Airlines’ fleet comprises a number of Boeing planes. In order to expand its fleet, the airline has ordered new planes of the company. Earlier this year, Boeing delivered three Boeing 787-9 Dreamliners and a 777-300ER to the airline. Further, the airline’s director general, Saleh Al Jasser, said that the aerospace giant will deliver four B787-9 jets in 2017.

The Global Market Outlook

In July, Boeing provided its global outlook, which projected global requirement of 39,620 new planes, worth $5.9 trillion, between 2016 and 2035. Single-aisle jets were expected to be the biggest demand catalyst, comprising 71% of the total growth projection. Worldwide demand for 28,140 single-aisle jets, worth $3.0 trillion, has also been projected for the next 20 years.

Overall, Boeing expects the commercial fleet to double over the next two decades to 45,240 airplanes by the end of 2035, fueled by sustained 4.8% annual growth in commercial passenger traffic. About 40% of the total commercial demand is likely come from the Asian markets, another 40% from Europe and North America, and the balance from the rest of the world.

Boeing – A Major Player

Demand for Boeing’s commercial airplanes is on the rise due to steady growth in passenger and freight traffic. It is the largest aircraft manufacturer in the world in terms of revenue, orders and deliveries. Its revenue exposure is spread across more than 90 countries. The company also plans to increase the production rate of its popular models like the 737 and 787-Dreamliner.

During the second quarter, Boeing secured net orders for 152 planes, its backlog reaching 5,700, worth a total $417 billion.

Zacks Rank & Key Picks

Boeing currently has a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the aerospace and defense space include Engility Holdings, Inc. (EGL - Free Report) and General Dynamics Corporation (GD - Free Report) .

Engility’s shares witnessed an 8.3% increase over the last five trading sessions. On an average, the company has delivered a positive earnings surprise of 12.09% in the trailing four quarters. Engility sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

General Dynamics carries a Zacks Rank #2 (Buy). The stock has gained 2.03% in its last five trading sessions. Over the last 60 days, the company’s earnings estimates for 2016 witnessed a 2.1% increase.

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